(12)

Equity

Share-Based Payments:

The Company maintains a stock option program for key employees, executives and directors. The plans, all of which have been approved by shareholder vote, provide for the granting of both nonqualified and incentive options. Options granted under the plans typically have a six-year term and vest over a four to five-year period. The fair value of shares vested in 2016 and 2015 aggregated $0.9 million and $0.8 million, respectively. Compensation cost, net of estimated forfeitures, is recognized on a straight-line basis over the requisite service period for the entire award. Forfeitures are estimated based on historic trends. It is generally the Company’s policy to issue new shares upon exercise of stock options.

The following table sets forth information with respect to nonvested options for 2016:

			Weighted Average Grant
	Number of Shares		Date Fair Value
Nonvested options – beginning of year		414,850	$	6.86
Nonvested options granted		149,850	$	7.43
Nonvested options vested or forfeited		(162,360)	$	6.69
Nonvested options – end of year		402,340	$	7.14

The effect of share-based payment expenses decreased income statement line items as follows:

	Year Ended December 31,
	2016		2015		2014
Income before income taxes	$	1,200	$	800	$	900
Net income attributable to Inter Parfums, Inc.		700		500		500
Diluted earnings per share attributable to Inter Parfums, Inc.		0.02		0.01		0.01

The following table summarizes stock option activity and related information for the years ended December 31, 2016, 2015 and 2014:

	Year ended December 31,
	2016				2015				2014
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Shares under option - beginning of year		709,300	$	24.34		639,495	$	23.19		643,595	$	19.58
Options granted		149,850		32.61		158,300		23.79		139,250		27.93
Options exercised		(123,150)		18.69		(80,685)		13.82		(136,640)		11.19
Options forfeited		(50,560)		27.18		(7,810)		27.77		(6,710)		19.37
Shares under option - end of year		685,440		26.95		709,300		24.34		639,495		23.19

At December 31, 2016, options for 1,078,755 shares were available for future grant under the plans. The aggregate intrinsic value of options outstanding is $4.3 million as of December 31, 2016 and unrecognized compensation cost related to stock options outstanding aggregated $2.8 million, which will be recognized over the next five years.

The weighted average fair values of options granted by Inter Parfums, Inc. during 2016, 2015 and 2014 were $7.43, $5.99 and $7.42 per share, respectively, on the date of grant using the Black-Scholes option pricing model to calculate the fair value.

The assumptions used in the Black-Scholes pricing model are set forth in the following table:

	Year Ended December 31,
	2016			2015			2014
Weighted-average expected stock-price volatility		29	%		33	%		34	%
Weighted-average expected option life		5.0 years			5.0 years			5.0 years
Weighted-average risk-free interest rate		2.0	%		1.7	%		1.7	%
Weighted-average dividend yield		2.1	%		2.1	%		1.8	%

Expected volatility is estimated based on historic volatility of the Company’s common stock. The expected term of the option is estimated based on historic data. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the option and the dividend yield reflects the assumption that the dividend payout as authorized by the Board of Directors would maintain its current payout ratio as a percentage of earnings.

Proceeds, tax benefits and intrinsic value related to stock options exercised were as follows:

	Year Ended December 31,
	2016		2015		2014
Proceeds from stock options exercised, excluding cashless exercise of $0.7 million, $0.5 million and $0.6 million in 2016, 2015 and 2014, respectively	$	1,579	$	653	$	953
Tax benefits	$	400	$	260	$	670
Intrinsic value of stock options exercised	$	1,860	$	1,137	$	2,733

The following table summarizes additional stock option information as of December 31, 2016:

			Options outstanding
	Number		weighted average remaining	Options
Exercise prices	outstanding		contractual life	exercisable
$15.59		70,050	0.99 years		70,050
$17.07		250	0.08 years		250
$19.33		87,310	2.00 years		66,530
$21.76		2,750	1.08 years		1,750
$22.20		2,800	2.08 years		1,200
$23.61		127,850	5.00 years		25,570
$25.29 - $28.82		14,000	3.79 years		3,000
$26.40		5,000	4.08 years		—
$27.80		114,880	4.00 years		45,880
$29.36		2,000	2.68 years		1,000
$32.12 - $32.83		148,350	5.91 years		1,750
$35.75		110,200	3.00 years		66,120
Totals		685,440	3.85 years		283,100

As of December 31, 2016, the weighted average exercise price of options exercisable was $24.20 and the weighted average remaining contractual life of options exercisable is 2.59 years. The aggregate intrinsic value of options exercisable at December 31, 2016 is $2.6 million.

The Chief Executive Officer and the President each exercised 19,000, 19,000 and 32,875 outstanding stock options of the Company’s common stock in 2016, 2015 and 2014, respectively. The aggregate exercise prices of $0.7 million in 2016, $0.5 million in 2015 and $0.6 million in 2014 were paid by them tendering to the Company in 2016, 2015 and 2014, an aggregate of 20,658, 18,764 and 19,656 shares, respectively, of the Company’s common stock, previously owned by them, valued at fair market value on the dates of exercise. All shares issued pursuant to these option exercises were issued from treasury stock of the Company. In addition, the Chief Executive Officer tendered in 2016, 2015 and 2014 an additional 2,179, 1,299 and 3,112 shares, respectively, for payment of certain withholding taxes resulting from his option exercises.

In September 2016, Interparfums SA, approved a plan to grant an aggregate of 15,100 shares of its stock to employees with no performance condition requirement, and an aggregate of 133,000 shares to officers and managers, subject to certain corporate performance conditions. The shares will be distributed in September 2019 so long as the individual is employed by Interparfums SA at the time, and in the case of officers and managers, only to the extent that the performance conditions have been met. Once distributed, the shares will be unrestricted and the employees will be permitted to trade their shares.

The fair value of the grant of €22.46 per share (approximately $25.00 per share) has been determined based on the quoted stock price of Interparfums SA shares as reported by the NYSE Euronext on the date of grant taking into account the dividend yield as no dividends on this grant will be earned until the shares are distributed. The estimated number of shares to be distributed of 137,381 has been determined taking into account employee turnover. The aggregate cost of the grant of €3.1 million (approximately $3.4 million) will be recognized as compensation cost by Interparfums SA on a straight-line basis over the requisite three year service period. In 2016, $0.4 million of compensation cost has been recognized.

To avoid dilution of the Company’s ownership of Interparfums SA, all shares to be distributed pursuant to this plan will be pre-existing shares of Interparfums SA, purchased in the open market by Interparfums SA. As of December 31, 2016, a total of 108,348 shares have been acquired in the open market at an aggregate cost of $2.9 million, and such amount has been classified as an equity transaction on the accompanying balance sheet.

Dividends

In October 2016, the Board of Directors of the Company authorized a 13% increase in the annual dividend to $0.68 per share. The quarterly dividend aggregating approximately $5.3 million ($0.17 per share) declared in December 2016 was paid in January 2017. The next quarterly dividend of $0.17 per share will be paid on April 14, 2017 to shareholders of record on March 31, 2017.